Mass Market: Power companies could compete at residential level, too

Saturday

Mar 28, 2009 at 12:01 AMMar 28, 2009 at 3:37 PM

As is often the case with legislation, big businesses enjoyed the biggest benefit from the state's 1997 electricity restructuring law. Suppliers are stepping over themselves to offer power to large commercial and industrial users. But Dominion remains the only major company to join the market for residential power in the state.

Jon Chesto

Dominion is flooding mailboxes across the region with a tempting pitch: Pick us as your electricity supplier and, for a limited time, we'll offer a lower price than your utility company.

A Dominion spokesman says the Virginia-based company is seeing strong results: Nearly 30,000 residential customers signed up in the past six weeks, bringing its customer base in this state to nearly 115,000.

So has the promise that electricity deregulation could bring competition finally been fulfilled? Not at all - at least not for the typical homeowner.

As is often the case with legislation, big businesses enjoyed the biggest benefit from the state's 1997 electricity restructuring law. Suppliers are stepping over themselves to offer power to large commercial and industrial users.

But Dominion remains the only major company to join the market for residential power in the state. That's one reason why the number of residential customers using a competitive supplier hit a plateau in the past year, at about 10 percent of all households in the state, after many years of growth.

Massachusetts isn't alone. Richard Levitan, an energy industry consultant in Boston, says some states have more choices than we do. But he knows of no state with vibrant competition.

There are many reasons why competition has been slow to arrive at the residential level. Marketers need to expend significantly more energy to sell power house-by-house than factory-by-factory. Many industrial customers have the expertise to take advantage of the changes in the cost of electricity in the spot market during peak and off-peak times.

Utilities such as National Grid and NStar also have a built-in marketing advantage. Their trucks roam our streets. Their crews are our friends and neighbors. Their names are on our electric bills, even if we pick Dominion to be our supplier, because we still need to pay for the distribution of the power over the utility's lines.

Utilities often had a purchasing advantage, as well. By locking in supply contracts six months ahead of time, a utility could stay ahead of rising wholesale prices and pass those savings on to consumers. However, that advantage has been somewhat short-circuited with the recent decline in natural gas prices in the past year.

Fortunately, other changes are on the way that could open the door a little bit more to competition, thanks to another state law - the Green Communities Act – that was signed by Gov. Deval Patrick last summer. Its main goal was to encourage renewable energy and conservation measures. But there are a few provisions that could also spark more competition.

Chris Kallaher, director of government affairs at Direct Energy, says two changes included in the law have put this state on his company's radar. One would standardize the way the utilities pass on the generation portion of the bills to competitive suppliers. The other is a requirement that utility customer service reps inform people that they have the option of buying power from an alternative supplier.

These provisions help level the playing field. Once they take effect, Kallaher says Direct Energy will strongly consider entering the Massachusetts retail market.

Philip Giudice, the state's energy resources commissioner, says he is hopeful about a different part of the new law - one that requires the state's four investor-owned electric utilities to craft “smart grid” pilot program proposals by next Wednesday.

For example, an NStar spokeswoman says her company will file plans next week to allow up to 2,800 customers with high-speed Internet connections to join NStar's effort. NStar will use a Web-based application to turn participants' electric meters into “smart meters” that will allow NStar to reward customers that shift electricity use to off-peak times.

Such a program would be a useful next step toward giving residential customers the flexibility enjoyed by big commercial users - the elusive goal of bringing “real-time pricing” to the people.

Electricity marketers that currently want to compete for residential customers can only offer better deals by the kilowatt-hour than the incumbents or more eco-friendly sources of power. However, if the price of electricity can vary throughout the day for homeowners, a number of new options could be created to entice consumers to make the switch.

While full competition has yet to arrive in the residential market, that doesn't mean that the 1997 deregulation law has been a failure.

The law has helped blunt the impact of New England's high energy prices on many of our major employers. It spurred a number of investors to pay for the construction of cleaner, natural gas-fired power plants. It also led to the creation of a regional program that helps homeowners on Cape Cod and the Islands get the best deals for their power.

And hopefully, with some of the changes under way, the law eventually could lead to numerous companies filling our mailboxes with promising options to reduce our electric bills.

Jon Chesto is the business editor of The Patriot Ledger. He may be reached at jchesto@ledger.com or at massmarketblog.com.

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